24.Currently, the market in a stock is “$42.62 bid, offered at $42.78.” A new sell limit order is placed at $42.62. This limit order is said to: A. Take the market. B. Make the market. C. Make a new market. 25.You decide to sell short 100 shares of XCorp stock at a price of $65. Your margin deposit is 65 percent. Commission on the short sale is 1.25%. While you are short, the stock pays a $1 per share dividend. Interest on margin debt is 5.25% per year. At the end of one year you close out your short position by purchasing share of XCorp at $55 per share. The commission on covering your short position is 1.25%. What is your rate of return on the investment? SecurityP0P1QD1WPWMWEPRTRA10151001.000.14290.06250.333350.00%60.00%B30313001.200.42860.56250.33333.33%7.33%C30362000.500.42860.37500.333320.00%21.67%Total70.0016000.00Price-weightedMarket-cap weightedEqual-weighted1-period PR17.14%12.50%24.44%1-period TR21.00%16.00%29.67%
Profit = $6,500 short sale $5,500 cover $100 for dividends $6500*1.25% for commissions on short sales -$5500*1.25% - (1-0.65)*6500*5.25% =6500-5500-100-81.25-68.75-119.4375 =$ 630.5625 Return = Profit / Initial Investment = $630.5625/(.65*$6,500 + $81.25) = $630.5625/4306.25 = 14.64% 26.A portfolio manager wants to sell 5 million shares of GEM Electric Power Inc. He observes that generally at the end of trading day share prices lower as many investors close their positions. The most suitable validity instruction for him is: 27.A financial planner has created the following data to illustrate the application of utility theory to portfolio selection:Investment Expected Investment Return (%) Expected Standard Deviation (%) 1 18 2 2 19 8 3 20 12 If the measure for risk aversion has a value of 2, the risk-averse investor is most likely to choose: A Investment 1. B Investment 2. C Investment 3. 28.An investor primarily invests in stocks of publicly traded companies. The investor wants to increase the diversification of his portfolio. A friend has recommended investing in real estateestate properties. The purchase of real estate would best be characterized as a transaction in the: 29.Consider the following statements: Statement 1: Risk free asset is an asset with zero standard deviation and zero correlation with all other risky assets. Statement 2: A more risk‐averse investor will have a steeper indifference curve than a less risk‐averse investor.Which of the following is most likely? A. Both statements are correct. B. Only Statement 2 is correct. C. Both statements are incorrect.